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FAA can't run a business, inspector general audit indicatesFAA can't run a business, inspector general audit indicates

FAA can't run a business, inspector general audit indicates

If the FAA is supposed to be run like a business, it still has a long ways to go, according to the most recent audit of the agency's books by the Department of Transportation's inspector general (IG).

The FAA can't properly account for almost $5 billion in assets and property, most of it attributed to the new Air Traffic Organization, which runs the air traffic control system.

Nor does the FAA yet have a fully functional cost accounting system, something the agency has been struggling to create since 1997.

"This audit report underscores that the user fee debate is about more than policy," said AOPA President Phil Boyer.

"How in the world can they price their 'product' - air traffic control services - if they can't track their assets or their costs?"

In fact, the agency's financial controls are so weak that it will cause the entire Department of Transportation to be in violation of the federal version of the Sarbanes-Oxley Act if not fixed before September, an international law firm that reviewed the audit has told AOPA.

Meanwhile, another report from the inspector general says that the FAA and the airlines have yet to prove that the current funding system needs to be changed in favor of a user fee system.

In a report on "Top Management Challenges - Department of Transportation," the inspector general notes that there is "intense controversy regarding what type of fees should be charged, who should pay what, and how - if at all - the current oversight of FAA spending should be altered."

In order to justify a switch to a user fee system, "the FAA would need to demonstrate clearly and convincingly why the current excise tax financing mechanism is not adequate and how its proposed solution would fix this problem."

It hasn't.

The IG also listed the challenge of determining how much the Next Generation Air Transportation System (air traffic control modernization) will cost, which will determine what kind of funding the FAA needs. So far, the FAA has just an "estimate" for a system that has yet to be designed and spec'd.

For that matter, the FAA doesn't even yet know what it will cost to replace retiring air traffic controllers, according to the IG.

"If you don't know your costs, how can you possibly say that you don't have enough revenue?" asked Boyer.

"Everybody would like more money and the freedom to spend it without anybody looking over their shoulder," said Boyer. "The FAA sure can't make a business case for that, as the audits clearly demonstrate."

The FAA audit was actually conducted by one of the leading international accounting firms, KPMG, for the inspector general. The firm returned a "qualified" audit, which, as anyone who runs a business knows, is bad news.

November 22, 2006

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